1/11/2007 @ 4:45PM

Governator Strong-Arms Health Care

Welcoming the new year with sweeping policy announcements on health care and the environment, California Governor Arnold Schwarzenegger has pleased plenty of voters but alarmed others  among them businesses who see heavy costs ahead.

On Monday the former movie star unveiled a plan to offer universal health care to Californians, 6.5 million of whom currently lack medical insurance. The governor says his plan, which will face a battle for approval in the California legislature, will cost $12 billion. That money would come from what Schwarzenegger calls new fees imposed on doctors and businesses  new taxes, in effect, though defining them as fees means they can be adopted by a simple majority of state lawmakers, rather than requiring two thirds.

The plan requires all employers with 10 or more workers to either provide health insurance or pay the state 4% of their payrolls. In addition, doctors and hospitals would face new taxes of 2% and 4%, respectively.

This is a tremendous burden on employers, says Sally Pipes, president of the Pacific Research Institute, a San Francisco-based policy think tank. It could result in businesses moving out of state, or limit new entrants to the market.

The proposal would also introduce new regulations for insurers. They would operate under a guaranteed issue mandate, meaning they would have to issue insurance to anyone who applied and be required to use a community rating model, meaning they would be barred from charging more to higher-risk customers.

In addition, the Schwarzenegger proposal dictates that health maintenance organizations, insurers and hospitals spend 85% of every premium dollar on patient care. Not surprisingly, shares in insurers
WellPoint
,
Humana
and
Sierra Health Services
dropped on Tuesday, though they recouped some of their losses later in the week.

Schwarzenegger calls his warm embrace of bigger government post-partisan politics, but Pipes sees irony in such a program coming from a Republican leader who professed to be a fan of the libertarian-leaning Milton Friedman. This is not Friedman-style health care, she says.

The governor followed up his health proposal with an order, on Tuesday, to cut at least 10% in the carbon content of motor-vehicle fuels used by 2020. The plan, which is aimed at reducing greenhouse gas emissions as well as dependence on foreign oil, will more than triple the size of the state’s market for renewable fuels such as ethanol. The new regulation also calls for the state to add electric and ethanol-powered vehicles to its own fleet.

Businesses facing compliance costs, like gas stations and refineries, are bound to feel squeezed. The size and influence of the California economy, though, means that farmers can look forward to a hefty rise in the cost of corn, one of the most common base products for ethanol in the United States  though that could also mean a rise in the cost of food for consumers, inside and out of California. Meanwhile ethanol producers and the companies pioneering electric and hybrid cars can expect a boost form Californias drive to lower carbon emissions.

With his espousal of two positions long seen as Democratic territory, the governor was asked in a press conference on Wednesday about speculation that he would change political parties. Im proud to be a Republican, he replied. I have no intention to switch parties.